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तमसो मा ज्योततर्गमय

INCOME TAX

A.Y. 2019-20

Chapter Index

1) Introduction
2) Residential Status
3) Income from House Property
4) Profit & Gains of Business or Profession
5) Capital Gains
6) Salary
7) Income from Other Source
8) Clubbing of Income
9) Set off & Carry forward of losses
10) Deduction
11) Agriculture Income
12) Return of Income
13) Tax Deducted at Source & Advance Tax
14) Income which do not form part of Total Income

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Chapter :1
Introduction of Tax

Difference between Direct & Indirect Taxes

Particulars Direct Tax Indirect Tax
Meaning Direct Taxes are the taxes in which the Indirect Taxes are such type of taxes
incidence and impact falls on the same where incidence and impact fall on two
person/assessee different persons.
Nature of tax Direct Tax is progressive in nature. Indirect Taxes are regressive in nature.
Taxable Event Taxable Income / Taxable Wealth of the Purchase / Sale / Manufacture of goods
Assessees. and /or rendering of services.
Levy & Levied and collected from the Assessee. Levied & collected from the consumer
Collection but paid / deposited to the Exchequer by
the Assessee / Dealer.
Shifting of Tax Burden is directly borne by the Tax burden is shifted to the subsequent /
Burden Assessee. Hence, the burden cannot be ultimate user.
shifted.
Tax Collection Tax is collected after the income for a year At the time of sale or purchases or
is earned or valuation of assets is rendering
determined on the valuation date.

Brief History of Income Tax in India

In India, Income tax was introduced for the first time in 1860, The Income Tax Act1961
has been brought into force with 1 April 1962. It applies to the whole of India including
Jammu and Kashmir.
Income-tax law in India
The income tax law in India consists of the following
components:
1. Income tax Act,1961
2. Income tax rules,1962
3. Finance Act
4. Circulars, notifications etc - CBDT
5. Legal decision of courts.
Finance Act:
Every year, the Finance Minister of the Government of India presents the Budget to the
Parliament. Once the Finance Bill is approved by the Parliament and gets the assent of the
President of India, it becomes the Finance Act.
Income-tax Rules:
The administration of direct taxes is looked after by the Central Board of Direct Taxes
(CBDT). The CBDT is empowered to make rules for carrying out the purposes of the Act.
For the proper administration of the Income-tax Act, the CBDT frames rules from time to
time. These rules are collectively called Income-tax Rules, 1962.
Circulars and Notifications:
Circulars are issued by the CBDT from time to time to deal with certain specific problems
and to clarify doubts regarding the scope and meaning of the provisions. These circulars

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are issued for the guidance of the officers and/or assessees.

Sec 2(7) Assessee
Every person in respect of whom, any proceeding under the act has been taken for the
assessment of his income or of the income of any other person in respect of which he is
assessable or of the loss sustained by him or by such other person or the amount of refund
due to him or to such other person may be called an assessee.
Deemed Assessee
A person who is deemed to be an assessee for some other person is called “Deemed
Assessee”.
Assessee in Default
When a person is responsible for doing any work under the Income Tax Act and he fails to
do it, he is called an “Assessee in default”.
Sec 2(8) Assessment
This is the procedure by which the income of an assessee is determined by the Assessing
Officer.
Sec 2(9) Assessment Year
“Assessment year” means the period starting from April 1 and ending on March 31 of the
next year. Eg: Assessment year 2013-14 which commences on April 1, 2013 and ends on
March 31, 2014? Income of previous year of an assessee is taxed during the assessment
year at the rates prescribed by the relevant Finance Act for tax rates
Sec 2(31) Person
Person includes
• Individuals - natural born persons.(Male/Female/Major/Minor)
• Hindu undivided family (HUF), (including Jain & Sikh families).
• Partnership firm including LLP (only for income tax separate legal entity).
• AOP / BOI.
• Companies - Indian and Foreign companies
• Local authorities.
• Any other artificial persons.
Sec 3 Previous year
Income earned in a particular year is taxable in the next year. The year in which income is
earned is known as previous year and the next year in which income is taxable is known
as assessment year. In other words, previous year is the financial year immediately
proceeding the assessment year.
Sec 4 Charging Section
Every person whose total income of the previous year exceeds the maximum income not
chargeable to tax is an assessee and chargeable to income tax at the rates prescribed in the
finance Act for the relevant assessment year.
Some Important Points regarding Income
• Either in cash or in kind.
• Includes Notional income.
• Every income need not be a taxable income.
• Illegal income is equally taxable.
• Every revenue receipt is taxable, unless otherwise exempted.
• Every capital receipt is exempted, unless otherwise taxable.
• Income includes loss.
•Same income can’t be taxed twice
(Previously accrual basis, now cash basis).
• Same person can be taxed twice
(As Individual and as Karta).

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•Income may be taxed either on accrual basis or cash

basis as the case applicable.
PREVIOUS YEAR & ASSESSMENT YEAR WILL BE SAME in the following cases
(Exceptions to the Previous Year)
1. Shipping business of non resident[Section 172]
2. Persons leaving India [Section 174]
3.AOP or BOI or Artificial Juridical Person formed for a
particular event or purpose [Section 174A]
4. Persons likely to transfer property to avoid tax [Section 175]
5. Discontinued business [Section 176]
Note: Previous Year for newly established business from the date of setting up of the
business to the end of the Financial Year in which business was set up.
Sec 172 Shipping business of non-resident:
In the case of a non-resident shipping company, which has no representative in India, any
income derived from carrying passengers, livestock, mail or goods shipped at a port in
India, will be taxed in the year of its earnings. 7.5% of the amount paid or payable on
account of such carriage will be deemed to be the income. Such ship will be allowed to
leave the port if the tax on such income has been paid or alternative arrangements to pay
tax are made.
Sec 174 Assessment of persons leaving India
When it appears to the Assessing Officer that any individual may leave India during the
current assessment year or shortly after its expiry and that he has no intention of returning
to India, the total income of such individual for the period from the expiry of the previous
year upto the probable date of departure from India shall be chargeable to tax in that
assessment year. The income shall be chargeable to tax at the rate or rates in force in that
assessment year but separate assessments shall be made in respect of each such completed
previous year or part of any previous year. If it is not possible to determine the income of
the assessee in the manner provided in the Act, the Assessing Officer shall estimate the
income for the period in question. For making assessment under this section the Assessing
Officer may serve a notice upon the assessee to Lesson 2 Basis of Charge, Scope of Total
Income and Residential Status 31 furnish within such time, but not less than 7 days, as
may be specified by the Assessing Officer in the notice, a return of his total income for the
previous year and his estimated income for any part of the previous year comprised in that
period. On receipt of the notice the assessee shall file the return and shall be taxed
accordingly.
Sec 174A Assessment of association of persons or body of individuals or artificial
juridical person formed for a particular event or purpose
Where it appears to the Assessing Officer that any association of persons or a body of
individuals or an artificial juridical person, formed or established or incorporated for a
particular event or purpose is likely to be dissolved in the assessment year in which such
association of persons or a body of individuals or an artificial juridical person was formed
or established or incorporated or immediately after such assessment year, the total income
of such association or body or juridical person for the period from the expiry of the

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previous year for that assessment year up to the date of its dissolution shall be chargeable
to tax in that assessment year, and the provisions of Section 174 shall, so far as may be,
apply to any proceedings in the case of any such person as they apply in the case of
persons leaving India.
Sec 175 Transfer of property to avoid tax
If it appears to the Assessing Officer that during any current assessment year any person is
likely to charge, sell, transfer, dispose of or otherwise part with any of his assets with a
view to avoiding payment of any liability under Income-tax Act, the total income of such
person for the period from the expiry of the previous year for that assessment year to the
date when the Assessing Officer commences proceedings under this section shall be
chargeable to tax in that assessment year. The provisions of Section 174 [already discussed
above] shall apply to the proceedings under this Section also.
Sec 176 Discontinued business
Discontinuance denotes the cessation of the business or profession. There can be no
discontinuance when a business or profession is sold to another. However, when a
business is broken into several units and is divided and carried on by its former owners
severally, there would be discontinuance. Where any business is discontinued in any
assessment year, the income of the period from the expiry of the previous year for that
assessment year upto the date of such discontinuance may, at the discretion of Assessing
Officer be charged to tax in that assessment year. Any person discontinuing a business or
profession shall give to the Assessing Officer notice of such discontinuance within 15 days
thereof. The total income of each completed year or part of any previous year included in
the period shall be chargeable to tax at the rates in force in that assessment year and
separate assessment shall be made in respect of each completed previous year or part of
any previous year.

Example: if a business is discontinued on 14-08-2015 then the income for period 1-04-
2015 to 14-08-2015 may be assessed in the previous year 2015-16 itself and the tax will be
charged at the rates applicable for advance tax payable during financial year 2015-16.

In the above four exceptions it is mandatory for the assessing officer to charge
the tax on the income in the same previous year. But in exception fifth he has the
discretionary power to charge tax in the same previous year or he may wait till the
assessment year.
Sec 5 Scope of Total Income
ROR RNOR NR
In India:
1 Income accrued or arise or deemed to accrue or
arise in India
2 Income receipt or deemed to receipt in India Yes Yes Yes
Outside India:
If income is accrud or arise outside india but if: any
Business is controlled or profession is set up in
India Yes Yes No
Any Other Income Yes No No

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TOTAL INCOME
The aggregate of the following 5 heads of income
PARTICULARS Rs.
Income from Salaries (Sec. 15 to Sec.17) XXX
Income from HP (Sec.22 to 27) XXX
Income from Bus. / Prof. (Sec.28 to 44DB) XXX
Income from CG’s (Sec. 45 to 55A) XXX
Other Sources (Sec. 56 to 59) XXX
Total of 5 heads XXX
Less/Add: Clubbing provisions (Sec.60-65) XXX
Deemed income (Sec. 66-69D) XXX
Set off & c/f of losses (Sec.70-79) XXX
Gross total income XXX
Less: Chapter VIA deductions (80A to 80U) XXX
Taxable income / Net total income XXX

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Chapter : 2
Residential Status

Salient Features
*A person can have different residential status in different years.
**A person can have different residential status in different countries.
***In the same year an assessee cannot have different residential status for different
source of income.
****Residential status once decided, shall continue to be applied during the previous year
under consideration.
Importance
1. Total income of an assessee cannot be determined without knowing his residential
status.
2. The residential status shall be determined for every person for each Previous Year
independently.
3. The onus of responsibility to prove the residential status is on the assessee.
Sec 6 Residential Status of an Individual
Basic Conditions: Resident
a. If the Individual stayed in India for a period of 182 DAYS OR MORE during the
Relevant Previous Year, he is Resident of India; (OR)
b. If he stayed in India for a period of 60 DAYS OR MORE during Relevant Previous
Year and 365 DAYS OR MORE during the four preceding Previous Years, he is
Resident of India.
If the assessee fails to satisfy either of the above basic conditions, as applicable, then the
assessee is a Non-Resident for that Relevant Previous Year.
Additional Conditions: Ordinary Resident
(i) Resident in India for at least 2 years out of the preceding 10 Previous Years.
AND
(ii) Physically present in India for at least 730 days during the 7 preceding
Previous Years.
Note: The day on which he enters India as well as the day on which he leaves India shall be taken into
account as the stay of the Individual in India.
Note: The term “stay in India” includes stay in territorial waters of India. Even the stay in a ship or boat
moored in the territorial waters of India would be considered for calculating total stay in India.
Note: It is not necessary that the period of stay to be in continuous nor it is essential to be at the usual
place of residence, business or employment of Individual.
Special exceptional situations:
(i) Individual, an Indian citizen, leaving India for employment outside India, or

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(ii) Indian Citizen being a crew member of an Indian ship leaving India, or
(iii) Individual, an Indian citizen or a person of Indian origin, visiting India.
In all the above 3 cases, 60 days in 1(b) must be replaced with 182 days. So, only
condition mentioned in 1(a) above only shall apply to determine their Residential Status
iv)Amendment Finance
(iv)Amendment FinanceAct,
Act,2015
2015 :
Special rule for the members of the crews of an Indian ship: In the case of an individual, being a
citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of
stay in India shall, in respect of such voyage, be determined in the manner and subject to such
conditions as may be prescribed. Accordingly, Income-tax Rule 126 has been inserted to provide that
the period or periods of stay in India shall, in respect of an eligible voyage, not include the period
beginning on the date entered into the Continuous Discharge Certificate in respect of joining the ship
by the said individual for the eligible voyage and ending on the date entered into the Continuous
Discharge Certificate in respect of signing off by that individual from the ship in respect of such
voyage. In simple words, in the Continuous Discharge Certificate the date of joining is recorded as 1st
January 2016 and the date of ending the voyage is recorded as 31st January 2016, then the entire period
of 31 days shall be excluded from his stay in India.
Meaning of Continuous Discharge Certificate: Continuous Discharge Certificate" shall have the
meaning assigned to it in the Merchant Shipping (Continuous Discharge Certificate-cum- Seafarer's
Identity Document) Rules, 2001 made under the Merchant Shipping Act, 1958.
Meaning of eligible voyage: "Eligible voyageǁ shall mean a voyage undertaken by a ship engaged in
the carriage of passengers or freight in international traffic where—
(i)for the voyage having originated from any port in India, has as its destination any port outside
India; and
(ii)for the voyage having originated from any port outside India, has as its destination any port in
India.]

Individual, an Indian citizen, and member of the crew of a FORWARD BOUND SHIP
LEAVING INDIA , the period or periods of stay in India shall, in respect of such voyage ,
be determined in the manner and subject to such conditions as may be prescribed.

Period Beginning From Period Ending To

Date entered into the continuous discharge Date entered into continuous discharge
certificate in respect of joining the ship by the said certificate in respect of signing off by that
individual for the eligible voyage. individual from the ship in respect of such
voyage.
Sec 6 Residential Status of HUF
Basic Conditions: Resident
Control & mang. of its affairs is wholly / partly in India..
Additional Conditions: Ordinary Resident : (Karta)
(i) Resident in India for at least 2 years out of preceding 10 Previous Years.
(ii) Physically present in India for at least 730 days during the 7 preceding Previous Years.

If Karta does not satisfy Additional Conditions HUF will be treated as Resident but not

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ordinary resident.

Non Resident: Control & management of its affairs is wholly outside India.
Residential Status of Firm, AOP, BOI, Art. Jud. Person:
A Partnership firm and an association of persons are said to be resident in India if control
and management of their affairs are wholly or partly situated within India during the
relevant previous year. They are, however, treated as non-resident in India if control and
management of their affairs are situated wholly outside India.
Residential Status of a Company
If it is an Indian Company Or
If the control or management of its affairs is wholly situated in India.
Amendment Finance Act ,2015 :
Its PLACE OF EFFECTIVE MANAGEMENT (POEM), in that year, is in India.

POEM means: A place where key management and commercial decisions that are
necessary for the conduct of the business of an entity as a whole are, in substance made.
Sec 7 Income Deemed to be Rect.
The following income shall be deemed to be received in the Previous Year :
(i) Employers contribution to recognized provident fund in excess of 12% of salary
and interest credited to the recognized provident fund in excess of 9.5%
(ii) The transfer balance in a recognized provident fund from unrecognised provident
fund (non taxable amount).
(iii) Sec 80CCD
Sec 8 Dividend Income
a. any distribution by a company of accumulated profits whether capitalised or not,
if such distribution entails the release by the company to its shareholders of all or
any part of the assets of the company ;
b. any distribution to its shareholders by a company of debentures, debenture-stock,
or deposit certificates in any form, whether with or without interest, and any
distribution to its preference shareholders of shares by way of bonus, to the extent
to which the company possesses accumulated profits, whether capitalised or not ;
c. any distribution made to the shareholders of a company on its liquidation, to the
extent to which the distribution is attributable to the accumulated profits of the
company immediately before its liquidation, whether capitalised or not ;
d. any distribution to its shareholders by a company on the reduction of its capital, to
the extent the company possesses accumulated profits whether such accumulated
profits have been capitalised or not ;
e. any payment by a company, not being a company in which the public are
substantially interested, of any sum, by way of advance or loan to a shareholder,
being a person who is the beneficial owner of shares holding not less than ten per

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cent of the voting power, or to any concern in which such shareholder is a

member or a partner and in which he has a substantial interest or any payment by
any such company on behalf, or for the individual benefit, of any such
shareholder, to the extent to which the company in either case possesses
accumulated profits ;

But “dividend” does not include –

(i)a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any
share issued for full cash consideration, where the holder of the share is not
entitled in the event of liquidation to participate in the surplus assets ;

(ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as
such distribution is attributable to the capitalised profits of the company representing
bonus shares allotted to its equity shareholders after the 31st day of March, 1964 ;

(ii)any advance or loan made to a shareholder [or the said concern] by a company in the
ordinary course of its business, where the lending of money is a substantial part of the
business of the company ;

(iii)any dividend paid by a company which is set off by the company against the whole or
any part of any sum previously paid by it and treated as a dividend within the meaning of
sub-clause (e), to the extent to which it is so set off ;

(iv)any payment made by a company on purchase of its own shares from a shareholder in
accordance with the relevant provisions of Companies Act.

(v)any distribution of shares pursuant to a demerger by the resulting company to the

shareholders of the demerged company (whether or not there is a reduction of capital in the
demerged company)

Capital & Revenue Receipts

The objective of the Income-tax Act is to tax only income generally revenue
receipts unless specifically exempted. On the other hand capital receipts are not chargeable
to tax except when specifically provided in the Act. The distinction between a capital
receipt and a revenue receipt should be perceived based on the facts and
circumstances of each case. There is no specific provision in the Act to distinguish
between a capital receipt and revenue receipt. It may be observed that :
A receipt in substitution of a source of income is a capital receipt while a receipt in
substitution of an income is a revenue receipt.
An amount received as a compensation for surrender of certain rights under an agreement
is a capital receipt whereas an amount received under an agreement as compensation for
loss of future profit is a revenue receipt.
Amendments Finance Act 2015:
Revenue Receipt: Income to include : Any assistance in the form of a subsidy or grant

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or cash incentive or duty drawback or waiver or concession or reimbursement (by

whatever name called) by the CG / SG / Local Authority / body etc in cash or in kind to
the assess other than the subsidy or grant etc which is reduced from ACTUAL COST of
depreciable assets as per explanation 10 to Sec 43(1).
Capital & Revenue Expenditure

In computing taxable income normally revenue expenditure incurred for the

purpose of earning income is deductible from revenue receipt unless the law provides
specific rules to disallow such expenditure wholly or partly. On the other hand capital
expenditure is not deductible while computing taxable income unless the law expressly so
provides.
Neither the capital expenditure nor revenue expenditure has been defined in the Act.
However, from the facts and circumstances of each case and from the judicial decisions the
following general principles to be kept in mind:

a. Capital expenditure is incurred in acquiring, extending or improving a fixed asset

whereas revenue expenditure is incurred in the normal course of business as a routine
expenditure.
b. Capital expenditure incurred for enduring benefits whereas revenue expenditure is
consumed within a Previous Year.
c. Capital expenditure makes improvement with earning capacity of a business whereas
a revenue expenditure maintains the profit making capacity of a business.
d. Capital expenditure is a nonrecurring expenditure whereas revenue expenditure is
normally a recurring one.
Sec 9 Income Deemed to Accrue or Arise in India
Income, directly or indirectly, through or from any:
a) Business connection in India
b) Property, asset or source of income in India
c) Transfer of capital asset situated in India
‘Salaries’ Payable:
a) For services rendered in India and includes the rest or leave period if forming the
part of service contract
b) By the Govt. of India to an Indian citizen for service rendered outside India
Dividend paid an Indian company outside India
Interest payable by:
a) Government
b) Non-resident, where money borrowed is used for business or profession carried
on by him in India.
c) Resident, except when the money borrowed is used for business or profession
carried on by him outside India or for earning any income from any source
outside India
 Interest paid by Indian PE to its Foreign HO Bank made Taxable, and Indirect
transfer of shares of Indian Company

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Royalty or Fees for Technical Services payable by:

a) Government
b) Non-resident for services, rights, property, etc. utilised by him in India
c) Resident except when paid in respect of services, etc. utilised by him outside India
Amendment : Finance Act, 2015 : New Section 9A :

Certain activities not to constitute business connection of offshore funds

Further, it is proposed that an eligible investment fund shall not be said to be resident in
India merely because the eligible fund manager undertaking fund management activities
on its behalf is located in India. This specific exception from the general rules for
determination of business connection and ‘resident status’ of off-shore funds and fund
management activity undertaken on its behalf is subject to the following conditions –
(1) Conditions for the offshore fund for being an eligible investment fund
 The fund is not a person resident in India
 The fund is a resident of a country or a specified territory with which an agreement
referred to u/s. 90(1) or 90A(1) has been entered into
 The aggregate participation or investment in the fund, directly or indirectly, by
persons being resident in India does not exceed 5% of the corpus of the fund
 The fund and its activities are subject to applicable investor protection regulations
in the country or specified territory where it is established/incorporated/resident
 The fund has a minimum of 25 members who are, directly or indirectly, not
connected persons
 Any member of the fund along with connected persons shall not have any
participation interest, directly or indirectly, in the fund exceeding 10%
 The aggregate participation interest, directly or indirectly, of ten or less members
along with their connected persons in the fund, shall be less than 50%
- The 3 conditions mentioned above need not be fulfilled in case of an
Investment Fund set up by the Government or the Central Bank of a foreign
state or a sovereign fund, or such other fund as the Central Government may
subject to conditions, if any, by notification in the Official Gazette specify in
this behalf.
 The investment by the fund in an entity shall not exceed 20% of the corpus of the
fund
 No investment shall be made by the fund in its associate entity
 The monthly average of the corpus of the fund shall not be less than Rs.100 crore
and if the fund has been established or incorporated in the previous year, the
corpus of fund shall not be less than Rs.100 crore at the end of such previous year
 The fund shall not carry on or control and manage, directly or indirectly, any
business in India or from India
 The fund is neither engaged in any activity which constitutes a business
connection in India nor has any person acting on its behalf whose activities
constitute a business connection in India other than the activities undertaken by
the eligible fund manager on its behalf.

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 The remuneration paid by the fund to an eligible fund manager in respect of fund,
management activity undertaken on its behalf is not less than the arm’s length
price of such activity
(2) Conditions for Fund manager for being an eligible Fund manager
 The person is not an employee of the eligible investment fund or a connected
person of the fund
 The person is registered as a fund manager or investment advisor in accordance
with the specified regulations;
 The person is acting in the ordinary course of his business as a fund manager;
 The person along with his connected persons shall not be entitled, directly or
indirectly, to more than 20% of the profits accruing or arising to the eligible
investment fund from the transactions carried out by the fund through such fund
manager.
(3) Furnishing Statement
 In prescribed form and manner within 90 days in respect of its activities in a
financial year from the end of the financial year.
 The said statement shall contain information relating to the fulfillment of the
above conditions or any information or document which may be prescribed.
 In case of non furnishing of the prescribed information or document or statement,
a penalty of Rs.5 lakh shall be leviable on the fund.
(4) Applicability The provisions of section 9A have not been made operative as of now
and it has been provided in sub-section (7A) to his section that it shall be applied in
accordance with such guidelines and in such manner as the Board may prescribe in
this behalf.

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Chapter : 4
Income under the head “HOUSE PROPERTY”

Sec. 22 Charging Section

“The annual value of property consisting of any buildings or lands appurtenant thereto of
which the assessee is the owner shall be chargeable to income tax under the head Income
from House Property".
Note 1: The buildings include residential buildings, buildings let out for business or
profession or auditoriums for entertainment programmes. The location of the building is
immaterial. It may be situated in India or abroad.

Note 2: Tax is charged on income from lands appurtenant to buildings : Where the land
is not appurtenant to a building the income from land can be charged as business income
or “income from other sources”, as the case may be. The lands appurtenant to buildings
include approach roads to and from public streets, courtyards, motor garage, compound,
play-ground and kitchen garden. In case of non-residential buildings, car-parking spaces,
drying grounds or play-grounds shall be the lands appurtenant to buildings.

Note 3: Where the recipient of the income from house property is not the owner of the
building, the income is not chargeable under this head but under the head ‘Income from
Business or Other Sources’.

Note 4: The owner of the buildings may be the legal owner or beneficial owner.
Sec. 27 Deemed Owner
a. Transfer to a spouse or minor child: an individual who transfers otherwise than
for adequate consideration any house property to his or her spouse, not being a
transfer in connection with an agreement to live apart, or to a minor child not
being a married daughter;
b. Holder of an impartible estate: The holder of an impartible estate as the
individual owner of all the properties comprised in the estate;
c. Member of a co-operative society: a member of a co-operative society, company
or other association of persons to whom a building or part thereof is allotted or
leased under a house building scheme of the society, company or
association, as the case may be, of that building or part thereof;
d. Person in possession of a property: a person who is allowed to take or retain
possession of any building or part thereof in part performance of a contract of the
nature referred to in Section 53A of the Transfer of Property Act, 1882;
e. Person having right in a property for a period not less than 12 years: A
person who acquires any rights (excluding any rights by way of a lease from
month to month or for a period not exceeding one year) in or with respect to any
building or part thereof, by virtue of any such transaction as is referred to in clause
(f) of Section 269UA, of that building or part thereof.
Imp Note 1
If a firm transfers its house property to its partners, before dissolution, merely by book
entries, annual value of the property is taxable in the hands of the firm

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Imp Note 2
In the case of tenant co-partnership co-operative housing societies, the income from each
building should be assessed in the hands of the individual members to whom it has been
allotted. Conversely,
for all purposes (including attachment and recovery of tax, etc.) the individual members
should be regarded as the legal owners of the property in question.
Imp Note 3
Where the owner of the property becomes insolvent, the official assignee or receiver under
the law of insolvency shall be chargeable in respect of the income from such house
property as the owner.
Imp Note 4
Where the title to the property is in dispute, the Assessing Officer is empowered to decide
the ownership of the property for income-tax purposes. However, where the decision of
the Court is contrary to the Assessing Officer’s decision, the decision of the court will
prevail and he will reassess the assessee accordingly.

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PPaaggee||2288

In the case of tenant co-partnership co-operative housing societies, the income from each
building should be assessed in the hands of the individual members to whom it has been
allotted. Conversely,
for all purposes (including attachment and recovery of tax, etc.) the individual members
should be regarded as the legal owners of the property in question.
Imp Note 3
Where the owner of the property becomes insolvent, the official assignee or receiver under
the law of insolvency shall be chargeable in respect of the income from such house
property as the owner.
Imp Note 4
Where the title to the property is in dispute, the Assessing Officer is empowered to decide
the ownership of the property for income-tax purposes. However, where the decision of
the Court is contrary to the Assessing Officer’s decision, the decision of the court will
prevail and he will reassess the assessee accordingly.
Sec .26 Co ownership
Where the property is owned jointly by two or more persons and their respective shares
are definite and ascertainable, they shall be assessed individually on their shares in the
income from the property.
Sec. 23 Computation of Gross
G Annual Value (GAV)
Factors :
1 Actual Rent (AR)
2Municipal Rent (MR)
3- Fair Rent (FR)
4- Standard Rent (SR)
MR or FR
Whichever is higher, is FR1
FR1 or SR
Whichever is lower, is FR2
FR2 or AR
If AR is higher If FR2 is higher
Due to Vacancy Any other case
AR is GAV FR2 is GAV
AR is GAV
Calculation of Taxable Income of House Property

For Let out or Deemed Let out Property

GAV Sec 23 xxx
Less: Municipal Tax Paid basis/ assessee (xxx)
NAV xxx
Less: Deductions u/s 24
24(a) : Standard Ded. 30% of NAV (xxx)
24(b) : Int on Loan Due Basis (xxx)
Gross Taxable income HP xxx
Less: Recovery of Unrealised Rent (xxx)
Less: Arrear of Rent received (xxx)
Net Income from House Property xxx
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For Self Occupied Property
GAV NIL
Less: Municipal Tax (NIL)
NAV NIL
Less: Deductions u/s 24
24(a) : Standard Ded. 30% of NAV (NIL)
24(b) : Int on Loan 30000/ 200000 (xxx)
Net Taxable income HP xxx
Amendment as Per Finance Act, 2017 :
Property consisting of any building or land appurtenant thereto is held as stock not let out
during the whole or any part of the PY shall be NIL for period upto one year from the end
of the FY in which the certificate of completion of construction of property is obtained.
Sec. 24(a) Standard Deduction :30% of NAV
Sec. 24(b) Interest on Loan
For Let out or Deemed Let out Property :
100% of Interest is allowed.

For Self Occupied Property :

If the following conditions are fulfilled then max Rs 2,00,000/- is allowed otherwise Rs
30,000/- is allowed:
1 Loan is taken for construction or acquisition of house.
2 Loan is taken on or after 1-4-1999.
3 House must be acquired or constructed within 5 years* from the end of the year in
which the loan was taken.
Note 1 Interest on interest: Interest on unpaid interest shall not be allowed as a deduction.
Note 2 Interest on fresh loan to repay existing loan: Interest on any fresh loan taken to repay
the existing loan shall be allowed as a deduction.
Note 3 Inadmissible interest: Interest payable outside India without deduction of tax at source
and in respect of which no person in India is treated as an agent u/s 163 shall not be an
allowable expenditure. Sec 25
Note 4 Brokerage: Any brokerage or commission paid for acquiring the loan will not be allowed
as a deduction.
Note 5 Prior period interest: Prior Period Interest shall be allowed in five equal instalments
commencing from the financial year in which the property was acquired or construction
was completed.

Note: Prior period interest means the interest from the date of borrowal of the loan up to
the end of the financial year immediately preceding the financial year in which acquisition
was made or construction was completed.
Sec 25A Treatment of Arrear of Rent / Unrealised Rent
Unrealized Rent means the rent not paid by the tenant to the owner and the same shall be
deducted from the ‘Actual Rent Receivable’ from the property before computing
income from that property, provided the following conditions are satisfied:
a. The tenancy is bonafide
b.The tenant has vacated all the properties belonging to
the asessee.
c. The assessee has taken all the legal steps to recover
unrealised rent.
d. The assessee has made satisfied to the AO that all steps will be fruitless.

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Meaning of Arrear of Rent: Arrears of Rent means the incremental rent relating to

earlier financial years which has not been offered to tax in those financial years itself, but
received during the current financial year.
Chargeability: Receipt of Arrears of Rent / unrealised rent will be
chargeable to tax under the head Income from House Property only.
Year of Receipt: It is taxable as income of the financial year in which he
receives the arrears of rent.
Non-subsistence of Ownership: It is taxable in the hands of the
Individual even if he does not own the property at the time of receipt.
Deduction: A standard deduction of 30% of the amount.
Note Standard Rent under the Rent Control Acts :Standard rent is the
maximum rent which a person can legally recover from his tenant under a
Rent Control Act
Income from buildings is not assessable under this head:
(a) Buildings or staff quarters let out to employees and others: Where the assessee lets
out the building or staff quarters to the employees of business whose residence there is
necessary for the efficient conduct of business, the rent collected from such employees is
assessable as income from business and taxable under the head business or profession and
not under this head.
(b) If building is let out to authorities for locating bank, post office, police station,
central excise office, etc.: income will be assessable as income from business provided
the dominant purpose of letting out the building is to enable the assessee to carry on his
business more efficiently and smoothly.
(c) Composite letting of building with other assets: Where the assessee lets on hire
machinery, plant or furniture belonging to him and also buildings and the letting of the
buildings is inseparable from the letting of the said machinery, plant or furniture, the
income from such letting is chargeable to tax under the head “Income from other Sources”
if it is not chargeable to income-tax under the head “Profits and gains of business or
profession”.

However, if rent is separable between rent of building and rent for other facilities viz. rent
of machinery, plant or furniture or other facilities etc, then rent of building would be
taxable as Income from house property and rent for machinery, plant or furniture or other
facilities would be taxable as either Income from Other Sources or Profits and gains of
business or profession, depending upon the facts of each case.
(d) Income of State Industrial Development Corporation for letting out of sheds, etc.
is business income and is not taxable under Section 22.
(e) Services rendered in providing electricity, use of lifts, supply of water,
maintenance of stair case and watch and ward facilities are not incidental to letting out
property, and charges qua said services are assessable as income from other
sources, and not under the head income from house property.

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